The national economic picture is fundamentally strong and only expected to grow for the duration of 2021, predicts Esther George.
The president of the Federal Reserve Bank of Kansas City, George remarked in a speech before the Economic Club of Indiana: “My own expectation is that the strength of the underlying fundamentals will continue to support solid consumption growth.”
George added that current projections are indicating not only a growth in household incomes, but more varied incomes due to an increase in employment.
“With a record 6.5 million people added to payrolls last year, more people working means more income and more spending in the economy,” continued George. “This is particularly true for the wage gains going to lower-income workers, a group that has traditionally spent a relatively large share of their paychecks.”
George also forecast demand growth due to a particularly pandemic-impacted factor: increased savings. “Significant fiscal transfers, along with subdued spending early in the pandemic, allowed many to accumulate savings and pay down debt. Households now have over $2 trillion in additional savings relative to pre-pandemic trends.”
While some households, as the economy continues to open up, may opt to hold on to their savings, notes George, “many have the capacity to spend.”
While painting a generally positive economic picture, George nevertheless acknowledged that the “persistence of the virus is likely to further delay a normalization of the skewed pattern of consumption we have observed over the past two years.”
That skewed pattern since the spring of 2020 has seen an increase in home improvement goods and materials purchases, as well as exercise equipment and bicycle sales.
At the same time, spending on services remains lower than usual, noted George, “as consumers continue to avoid in-person recreation, including live performances and movies, and have cut back on visits to doctors and dentists.”
George is also cautiously optimistic regarding supply chain issues, noting that “the range of disruptions across factories and across countries has jumbled global supply networks, as have disruptions to transportation networks, including the carefully choreographed movement of shipping containers around the world temporarily collapsing in disarray.”
But, contended George, “there are indications that the worst has passed as shipping rates have peaked and port backlogs are being cleared.”
By Garry Boulard
